August 24, 2003
Financial Services Agency, Japan

Scheme to Lower Guaranteed Rate of Life Insurers

In addition to policy amount decrease and stagnated stock market, the Japan's record-low interest rates have made life insurers earn considerably less on investments than the investment returns expected on policies sold years ago, when rates were much higher. The aggregate gap between investment income earned and investment income originally expected, ''negative spread'', has a serious impact on life insurers, although gains from low mortality and low cost surpassed the loss and resulted in profits from basic insurance business operation.

Under the circumstances, revision of the Insurance Business Law went into effect on August 24, 2003 as one of the options to resolve the ''negative spread''. The revision provides scheme to allow a life insurer that will likely to have difficulty to continue its business to alter its contract terms by autonomous procedures between an insurer and its policyholders.

Followings are major points of the scheme.

1. Procedure to alter contract terms of a life insurer

(1)	A life insurer that will likely to have difficulty to continue its business files alteration of its contract terms.
(2)	In case of a mutual company, its assembly of members' representatives decides a plan to alter contract terms with three-forth or more approvals. In case of a stock company, its general meeting of shareholders does so with two-third or more approvals.
(3)	The plan is disapproved in case more than one-tenth of the policyholders whose contract will be altered object.

2. Limits to alter contract terms of the insurer

(1)	Established technical provision cannot be decreased.
(2)	Guaranteed rates after alteration cannot be less than 3 percent as prescribed in the relevant Enforcement Orders.

3. FSA

(1)	The FSA cannot consent the insurer to alter contract terms unless following two conditions are met.
	i) The insurer took necessary measures to continue its business. ii) Alteration of contract terms is considered to be appropriate from the viewpoint of policyholder protection.   note) The FSA makes an insurance inspector to inspect the plan if necessary.
(2)	If necessary, the FSA can order temporary suspension of surrender of the contracts of the insurer after it consents the insurer's filing of the alteration of its contract terms.

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Attachment

Scheme to Lower Guaranteed Rate of Life Insurers

Financial Services Agency, Japan

Filing alteration of contract terms by an insurer In case continuation of its insurance business will likely to be difficult unless contract terms are altered
Consent to the filing by FSA Upon filing from the insurer, FSA consents it, if it is appropriate to begin procedure to alter contract terms.		Order to suspend surrender FSA orders temporary suspension of surrender of the contracts of the insurer.
Preparation of a plan to alter contract terms Preparation of a plan to alter contract terms by the insurer (Established technical provision cannot be decreased.) Approval by the assembly of members' representatives or the general meeting of shareholders
Consent of the plan by FSA FSA makes an insurance inspector to inspect the plan if necessary (the rights of the policyholders)
Procedures for objection by policyholders whose contract will be altered (the period is one month or longer) The plan is disapproved in case more than one-tenth of the affected policyholders object it.
Public notification of alteration of contract terms and notification to each policyholder whose contracts will be altered		Release from the suspension